Shareholders rights Flashcards
Board of directors decisions made by?
Ordinary majority
board powers come from?
Articles
who are the members in general meeting + stat
112 CA 2006
1 subscribers of first memorandum (basically first shreholders).
2. every other person in members register
How do members make decisions
- resolutions at general meetings (all reg. comp.)
- OR written resolutions (private reg. comp.)
- OR Unanimous assent (common law)
Ordinary resolutions require + stat
simple majority of votes (above 50%) s 282 (1) CA 2006
Special resolutions require special majority of + stat
75% at gen. meeting s 283 (1)
How come shareholders hold ultimate power + stat
they may dismiss directors by ordinary resolution s.168
Certain matters can only be determined by special resolution like what?
Altering articles s21
Art 4 of model articles:
Shareholders can instruct directors (not)to take certain action
Overview general meeting + stat
- All members=right to attend GM
- Members attend&vote personally, audio-vis, thru proxies
- Right to appoint proxy s325
- PLCs must hold annual meetings s336(1)
members with full paid shares of at least 5% or at least 100 members with shares paid up to £100 each on average may: +stat
- require company to give notice of a resolution that they want tabled at next AGM s338
- Require that a matter be included on AGM agenda
Rules regarding notice for GMs + stat
s307
- at least 14 days notice gen. required
- for PLCs 21
- for ‘traded comps.’ 21 days
- GMs that aren’t Annual GMs can be called by directors (if its 8months till next AGM) s302
- directors can be instructed to do so by members representing 5% of paid up shares (at least) s303
- courts have discretionary power to order GM s306
Effectiveness of GMs
- do little to empower because
- attendance impractical as members are round globe
- large %age of shares held by institutional shareholders (organisations)
- proxies=matters decided before meeting
- important matters, usually rubber stamped
Can shareholders effectively hold board accountable?
1- in reality, board of PLC holds much power
2- issues e.g. distance mean that shareholders dont interfere with board
3- argument: director=not accountable. esp. in big businesses where short term finance performance satisfies shareholders
4- inadequate supervision of directors can lead to comp. collapse and finance scandals
Duty in s172(1) (effort to remedy lack of director supervision)
director must act in a way, in a good faith, that he believes will promote the success of company for members as a whole. In doing so they must HAVE REGARD TO (list of 6 in stat book)
is ‘have regard’ too vague to have effect on director conduct?
Company const.: what stat say all companies must have own articles or prepare own (to submit to registrar)
s.18
If own articles aren’t submitted…
also if own articles are silent on an area…
+stat
model articles will be used s20.
Nature and effect of AoA + stat and case
- if it conflicts with stat., stat. wins
- AoA can circumvent this (bushell v Faith [director in question votes worth more])
articles are given contractual effect as between member and company by virtue of
S33(1) aka stat contract
Strange characteristics of stat. contract
- can’t be set aside for mistake, misrep duress or undue influence
- implied terms can’t be added
- can only be altered by special resolution (s.21)
Enforcement of articles by COMP. AGAINST MEMBERS + case
- company may enforce any provision
- If member inconsistent with articles he may be sued
- Hickman AoA contained arbitration clause [must arb before taking comp. to court]. Hence, he couldn’t effectively sue when he didn’t adhere
- Articles can’t remove member stat. rights
Enforcement of art. by MEMBERS AGAINST OTHER MEMBERS + cases
- unclear if this is possible
- Welton v Safferey: member incositent with AoA-wrong against company. other member is improper claimant.
- Rayfield v Hands: member able to invoke stat contract to enforce pre-emption (sell share? must offer)rights against other members
- Gerrie: court assumed s33(1) created rights between members (though this wasn’t the issue.
- perhaps, if breach is against comp&members, then impossible BUT
- If against memebers alone? Possible
Enforcement of art by MEMBERS AGAINST COMP. + stat
- not clear to which company is a party to contract
- controversy due to predecessor sections
though s33(1) says ‘covenant on part of company and each member’ - s14 CA 1985 says ‘as if it had been signed and sealed by each member’ company left out
- Suggests company is not deemed to have covenanted
Insider rights + cases
- member can sue company for breach of any insider rights contained in const.
- insider rights: rights conferred by articles on members IN THEIR CAPACITY AS members
- e.g. Wood v Odessa Waterworks (right for memeber to insist declared dividend be paid in accordance with articles)
- Pender v Lushington: right of member to vote at general meeting in any way he chooses
- Gerrie: right to compel comp. to arrange fair valuation of shares which one wishes to sell (here, shares had to be offered 1st to existing members&comp. would arrange fair valuation)HELD: shareholder could enforce this against comp. under s33(1)
Insider rights difficulty + case
difficult to differentiate:
- act by officer of company amounting to breach of members personal rights by company
- One which amounts to wrong against company (foss v Harbottle-company is proper claimant here)
Irregularities in internal management are… +case
wrongs against company:
- Macdougall v Gardiner: GM: dismissal of chairman dep. chair allowed delay to another meeting. AoA said adjournment could be challenged by poll (show hands). Claimant demanded poll, dep chair refused it (similar to Pender v Lushington-wrong against MEMBER)
- Here it was wrong against comp as chair didn’t follow rules (like in pender)
- Difficulties as above usually seen involving GMs
Enforcement of articles by member against company: outsider rights + case
- rights conferred on members by articles. NOT concerned with membership
- concerned with capacity as an outsider (director, solicitor, etc)
- Hickman: outsider rights not enforceable against company (general rule)
- e.g. Eley: right of a member to be a comp. solicitor.(was dismiessed early as solicitor. couldn’t invoke stat contract as it is outsider right. an acc contract would’ve been better)
Outsider rights enforced by member qua member +case
- member can compel company in capacity as member to act in accordance with articles
- Quin&axten v Salmon: right to vote=ignored. Enforced qua member.
- HOWEVER: Beattie v E&F Beattie ltd: BEING sued in capacity as director, in no position to invoke AoA via sat. contract
- being sued in capacity as director locked him in, so he couldn’t act in capacity as member
Foss v Harbottle
Every shareholder has right under stat. contract to compel company to act in accordance with all its articles
Shareholder agreements
- uncertainties concerning stat. contracts mean members get into shareholder/membership agreements
- these can cover, voting rules, share transfers & appointment if directors
- common in smaller private comps
- conventional contracts: normal remedies for breach
- no need for qua member, insider or outsider rights
- cant be varied by special majority, not a public document
